Our New Refrain: ‘First Time in a While’

It seems like the world of trading and investing is full of adages. They’re not as creative as “Festivus” or “anti-dentite,” (as in Seinfeld) but quips like, “Buy the rumor and sell the news,” and, “Sell in May and go away,” are a few that come to mind. One axiom that is particularly timely is, “The market has no memory.” This one is just true enough to make you ponder its validity.

As a believer in systematic investing, we wrestle with this statement:

  • On the one hand, it seems everyone pays attention to calendar year performance. Investors at all levels remember prior year rates of return, which can lead to biases and misplaced expectations. It is also well-established in the data that trends exist and can persist over long periods.
  • On the other hand, you can look at the history of rolling or calendar year performance, which appears to be completely random.

We think the best way to cut through this noise is to use a systematic investing process that is adaptable and not dependent on any one market environment for success.

In this month’s Note, we discuss our own refrain – “first time in a while” – which captures how we are increasing exposure in certain asset classes for the first time in many months (or years). Using our systematic investing process helps us remain adaptive and nimble and focuses us on what is objectively happening in the moment.

Below are the asset classes utilized in our portfolios and their model-driven exposure heading into February.

Disclaimer: This note is for general update purposes related to the general strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your exposure to any given asset class will depend on your goals, risk profile, and how tactical or static your risk profile calls for. Adjustments can vary across strategies depending on each strategy’s objectives. What’s illustrated above most clearly reflects allocation adjustments for the Growth Strategy. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth, please contact your advisor.



Equities & Real Estate

U.S. large-cap equities continued to be range-bound in January, providing a positive return but ultimately failing to break the December high. Mid-cap equities challenged recent highs more strongly and performed better than their large-cap peers. Small-caps are arguably the strongest-performing segment of the three right now, as well as closest to having both intermediate- and long-term uptrends. Our portfolios will increase exposure to all three but remain underweight compared to baseline targets.

Foreign-developed equities emerged as the strongest equity asset class as of late and will move into an overweight status in our portfolios for the first time in years. The long-term trend is turning positive, joining the intermediate-term trend. This will be the first long-term uptrend since late 2021.

Emerging market equities came close to triggering uptrends in December, and the strengthening continued in January. Driven by China, this segment will experience an intermediate-term uptrend heading into February, and all our portfolios will see an exposure increase. The long-term trend remains negative for now.

Real estate securities have been battered by interest rate hikes but also experience an intermediate-term uptrend. The long-term trend remains negative. As a result, all our portfolios continue to be underweight, but exposure will again increase from the minimum allocation.

Fixed Income & Alternatives

Like their equity counterparts, multiple segments of the yield curve in U.S. fixed income have strengthened to intermediate-term uptrends. Longer-duration U.S. Treasuries are arguably the strongest, followed by intermediate-term, then short-term bonds. Our portfolios will remain underweight overall but experience the first meaningful increases in some time.

Gold continues its steady climb from early November lows and is at its highest level since last summer. Exposure will increase from underweight to target weight as the long-term trend joins the intermediate-term trend in positive territory.

    Three potential catalysts for trend changes:


    • Big Data Week: Wednesday: The Federal Reserve is expected to hike rates 25 bps to 4.50-4.75%, which is in line with fed fund futures expectations. Thursday: We will hear from both the Bank of England and the European Central Bank, with the first expected to hike rates by 50 bps to 4% (a ”surprise” of just 25 bps is expected by 13 of 42 analysts surveyed by Reuters), and the second expected to go with a 50 bps increase to 2.5%. Friday: The U.S. Labor Department will release its January jobs report. In addition to those anticipated announcements, we will get key data on U.S. employment costs, job openings, factory activity, and productivity.
    • State of the Job Market: The labor market broadly improved across the U.S. last year. Every state added jobs in 2022, but the pace of gains varied widely. The national unemployment rate fell to a seasonally adjusted 3.5% in December, which matched the lowest reading in 50 years. Some states had significantly lower rates. Utah had the nation’s lowest rate at 2.2%, and North and South Dakota also pulled in sub-3% unemployment rates, along with several other states.
    • The Path Forward?: Federal Reserve officials will meet this week to discuss how much more to lift interest rates both for this meeting and in the long run. Key to those discussions will be guessing how much their previous rate increases have already cooled growth and inflation. The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose 5% in December from a year earlier, which was the slowest annual gain since September 2021. The core PCE-price index, which captures underlying inflation after removing volatile food and energy prices, rose 4.4% from a year earlier, its slowest pace since October 2021.

    The Adaptability of a Systematic Investing Approach

    “Realize deeply that the present moment is all you ever have. Make the NOW the primary focus of your life.”

    Eckhart Tolle

    A common theme we are observing in the markets right now is “first time in a while.”

    For example, it’s the first time in a while that foreign-developed markets are the strongest equity segment geographically. It’s the first time in a while that we’ve had any uptrend in emerging markets – same with U.S. fixed income. Within fixed income, it’s the first time in a while that longer duration is outperforming shorter duration. That’s multiple firsts in the last year or so, all hitting at the same time as we enter February. As readers might expect by now, these market firsts are translating to firsts in a while” for our portfolios as well.

    For us, this highlights the adaptability of our systematic investing approach to asset management.

    Because our strategies are rules-based, we can perform historical tests to determine how our strategies are likely to perform in various environments, rate cycles, and economic climates. We have built up a tremendous amount of confidence in our strategies because of these objective tests.

    However, our rules-based framework for strategy development also leads to some interesting questions.

    One of the great questions we receive is about how we can be confident our strategies will continue to work in the future if the future is unlikely to look like the past. The answer, in our view, has everything to do with adaptability. It is our belief that more adaptable strategies are less reliant on past events and thus more strongly positioned to perform well in the future. The current market environment is a prime example.

    Allow us to explain…

    Every strategy makes assumptions and creates constraints for itself. For example, a strategy that will only buy and hold the S&P 500 has historically performed ok on an absolute basis. However, if U.S. stocks ever enters a Nikkei (Japan’s S&P 500 equivalent) Index-style decline, then it will likely perform poorly. In other words, a strategy of buying and holding the S&P 500 is only as good as the index it is tied to. The index is completely dependent on the environment in which it operates.

    On the other hand, a strategy that can go both long AND short the S&P 500 index has likely underperformed a buy-only strategy over the last few decades. Yet, since it is more adaptable, it should perform better in that Nikkei-style decline we just mentioned. Someone who allocates to this strategy is making a bet that being more adaptable is better, despite the recent performance of the two different strategies (long only vs long/short). Due to the strategy’s adaptability, it is less dependent on the environment for its success. It is important for investors to remember that in order to have adaptability, one must generally accept at least some potential underperformance over shorter periods of time versus less adaptable strategies (i.e., indexes).

    Now let’s bring the adaptability theme full circle to shed light on the question of how our strategies might perform if the future looks different than the past. We have strategies with varying levels of tactics and thus varying levels of adaptability.

    The composition of each strategy shifted dramatically over the past 18 months. For example, our portfolios were overweight growth stocks in 2021. Then, thanks to our systematic investing process that uses trend following, the portfolios were much more value-oriented in 2022, and now in early 2023. Similarly, our strategies now have a much higher allocation to foreign-developed equities, following almost a decade of generally being underweight. Lastly, bond duration is also much higher today than during the prior 12 months, as the trend in longer-term bonds has strengthened.

    This adaptability means our strategies are not dependent on whatever factor is driving performance at any point in time. It’s almost as if the past does not exist (and neither does the future)!

    How is this accomplished within our framework? The longest timeframe we consider as part of our systematic investing rules is the last 200 trading days. Data prior to the last 200 days is ignored.

    Sometimes people are surprised to hear that the longest timeframe accounted for by our systematic investing process is only 200 days (at most). But, our experience and historical stress testing of the data shows that this timeframe is sufficient to support clients in reaching their financial goals.  

    That said, we’ll repeat something we said earlier: All strategies make assumptions. We generally make an assumption that the assets in our portfolios will go up over the long term to help us earn the return we expect. We also make a general assumption that the historical behaviors of stocks relative to bonds will continue for many periods in the future, which influences the baseline allocations we use when constructing our portfolios. These assumptions put us in line with the vast majority of the portfolio management universe.

    The key difference between the rest of the universe and us is that we let price trends tell us what to do in the moment, tactically. It is this adaptability and nimbleness that allows us to shift exposures relatively quickly. It allows us to be less captive to the past and therefore eliminate our reliance on the future needing to look like the past. We believe this makes your future less reliant on the whims of the market as well, keeping your future on a more steady path.


    David Childs, Ira Ross, and Eric Warren

    Disclaimer: this note is for general update purposes related to the strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your particular exposure to any given asset class will depend on your goals, risk profile, and how tactical or passive your risk profile calls for. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth please contact your advisor. This email and the data herein is not a solicitation to invest in any investment product nor is it intended to provide investment advice. It is intended for information purposes only and should be used by investment professionals and investors who are knowledgeable of the risks involved. No representation is made that any investment will or is likely to achieve results comparable to those shown or will make any profit at all or will be able to avoid incurring substantial losses. While every effort has been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Historical data are presented for informational purposes only. Investment programs described herein contain significant risks. A secondary market may not exist or develop for some investments portrayed. Past performance is not indicative of future performance. Investment decisions should be made based on the investors specific financial needs and objectives, goals, time horizon, tax liability, risk tolerance and other relevant factors. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Investors should consider the underlying funds’ investment objectives, risks, charges and expenses carefully before investing. The Advisor’s ADV, which contains this and other important information, should be read carefully before investing. ETFs trade like stocks and may trade for less than their net asset value. Spartan Planning Group, LLC (“Spartan” or the “Advisor”) is registered as an investment adviser with the United States Securities and Exchange Commission (SEC). Registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the Adviser has attained a particular level of skill or ability. Indexes are unmanaged and do not incur management fees, costs, and expenses. Spartan’s risk-management process includes an effort to monitor and manage risk, but should not be confused with and does not imply low risk or the ability to control risk. There are risks associated with any investment approach, and Spartan strategies have their own set of risks to be aware of. First, there are the risks associated with the long-term strategic holdings for each of the strategies. The more aggressive the Spartan strategy selected, the more likely the strategy will contain larger weights in riskier asset classes, such as equities. Second, there are distinct risks associated with Spartan Strategies’ shorter-term tactical allocations, which can result in more concentration towards a certain asset class or classes. This introduces the risk that Spartan could be on the wrong side of a tactical overweight, thus resulting in a drag on overall performance or loss of principal. International investments may involve additional risks, which could include differences in financial accounting standards, currency fluctuations, political instability, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks. Diversification strategies do not ensure a profit and do not protect against losses in declining markets